Wednesday, February 05, 2014

The CBO explanation of ACA effects screams for single-payer

Congressional Budget Office

To many Republicans in Congress the CBO's recent comments on the effects of the Affordable Care Law on labor markets appear to be the proof they need to continue attacking the law. That's because they are Republicans who welcome the opportunity to mistakenly interpret and then mislead Americans into thinking badly about the health care law.

The CBO's explanation is not about a bad health care law forcing business to take jobs away from Americans. It is mainly about Americans who may make a personal choice to leave the labor market or change their jobs because of some amount of financial benefit the health care law subsidies may give them.

Whether this conclusion will ever be realized is questionable since many of the CBO's premises are purely conjecture and have no means to substantiate them. The affordable care act law has not been in effect long enough to have shown any historical data to even hint that the conclusions drawn by the CBO are accurate. Throughout the CBO's report, which can be found on the web at http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014.pdf , the CBO itself has warned that the comments are subject to substantial uncertainty.

There are four areas where the CBO believes the ACA will have an impact on reducing labor supply, but major among them is the subsidies for health insurance purchased through the exchanges. These subsidies are largest for individuals whose income is near the federal poverty level. In many cases these people are working at the lowest level of low paying jobs and some may be working two or more jobs depending on their family situation, just to earn enough to pay their bills. In such cases, a worker may find that the health insurance subsidy reduces their family expenses enough to allow them to spend more time caring for their family at home and less time trying to earn the money to feed, clothe and shelter them.

Quoting from the CBO study,

The CBO's estimate of the response of labor supply to the subsidies is based on research concerning the way changes in marginal tax rates affect labor supply and on studies analyzing how labor supply responds to changes in after-tax income.

However, the study cited does not consider a family's real expenses. It only looks at a static response by all such families to an increase in taxes with the expected result of reducing their working hours to avoid paying higher taxes. It is not a convincing argument of real-life and is most likely another flaw in their analysis.

The expansion of Medicaid is a second area which the CBO believes can impact certain parties in the workforce to reduce their personal working hours, since a person who is at 100-138% of the poverty level in states that have not enacted Medicaid expansion are eligible for health insurance subsidies through the exchanges. Apparently the CBO believes that once people get subsidies they no longer want to contribute to society.

Penalties on employers that decline to offer insurance is a third area that the CBO believes will reduce workers personal preference to work. The CBO believes that business owners will transfer the costs of these penalties to their workers, thereby effectively reducing their wages or by removing other employee benefits. Again, the CBO believes that the effective reduction in wages will cause some employees to reduce their working hours. The CBO believes that although there is only currently anecdotal evidence that employers will reduce their employees working hours to side-step the health care law, it states that they may do it in the future.

The CBO also expects that new taxes imposed on labor income will reduce the time some workers will want to work. Again implying that a worker's actions towards increases in taxes is to reduce his working time. Not very realistic in my opinion.

So, although most liberal media outlets are claiming that the CBO is only suggesting that workers themselves will make the decision to leave work early or reduce their hours, I believe the study causes more confusion than it is worth.

It's conclusions are suspect based on it's inability to derive future events from historical facts, largely because the health care law has only just begun to have an effect on people. It draws conclusions about worker actions in response to increases in taxes or reduction in wages without consideration for the real-life situation every person is in; to survive at a reasonable level of comfort; to contribute to society and feel valued.

Although business owners may take the unethical steps to circumvent the law by reducing employees wages or benefits, they can do that to others and the outcome for the business is positive insomuch as profit margin. A worker cannot simply reduce his work without changing some other aspect of his life and a health care subsidy is simply not enough of a change to result in the kinds of actions the CBO expects.

The CBO's explanation of the behavior of workers because of a subsidy may be worthless, but one aspect of the study does have some merit. That would be the possibility that when business is involved in providing insurance, they may transfer costs that are intended for them to their employees. Although I don't completely agree with the CBO's estimation that some workers may leave work because of this, where it occurs, it does still have a negative impact on workers. Because of this, an improvement in the ACA that the CBO study seems to be inadvertently advocating is to remove businesses from the equation altogether. This would make health insurance a single payer national program where the government is responsible for providing all health insurance.

Single payer health insurance was discussed in the United States legislature before but never got more than 20% support from Congress. It has been favorably evaluated by the CBO many times since 1993. Since it would be a government program, it's cost would need to be offset by new tax revenue, such as would be obtained from eliminating tax loopholes for the wealthy and minimizing government subsidies for big corporations.

Republicans would never allow their constituents to pay their fair share of taxes, so we are pretty much assured that single payer would never be a program while they control the House, which is another good reason to vote them out of office.